We expect coatings giant PPG Industries (PPG) to beat earnings expectations when it reports second-quarter 2013 results before the opening gong on Jul 18.
Why a Likely Positive Surprise?
Our proven model shows that PPG Industries has the right combination of two key ingredients to beat earnings.
Positive Zacks ESP: The earnings ESP (Read: Zacks Earnings ESP: A Better Method) for PPG Industries is +2.56% - the difference between the Most Accurate estimate of $2.40 and the Zacks Consensus Estimate of $2.34. This indicates a likely positive earnings surprise.
Zacks Rank #2 (Buy): PPG Industries’ Zacks Rank of 2 increases the predictive power of its ESP. The combination of its Zacks Rank and Earnings ESP makes us confident of a positive earnings surprise in the second quarter.
Note that stocks with Zacks Ranks of #1, 2 and 3 have a significantly higher chance of beating earnings. The Sell rated stocks (#4 and 5) should never be considered going into an earnings announcement.
Expected Earnings Drivers
We expect healthy momentum across North America and Asia coupled with PPG Industries’ cost containment measures through its restructuring program to lend support to earnings in the second quarter. The company is pursuing restructuring of its European operation, which is expected to fetch meaningful cost savings this year.
Continued strength across automotive OEM and aerospace markets should aid to results as did in the first quarter. Moreover, the second quarter numbers should incorporate the results of the company’s acquisition of North American architectural coatings business of Dutch paints company AkzoNobel, N.V. (AKZOY).
The acquisition expanded PPG Industries’ scale in the North American architectural paint market, which is expected to benefit from a recovery in the construction market. The company expects to achieve $200 million in annual synergies from the buyout within the first three full years.
Other Stocks to Consider
PPG Industries is not the only firm looking up this earnings season. We also see likely earnings beats coming from these companies.
Cytec Industries Inc. (CYT) has an earnings ESP of +2.36% and carries a Zacks Rank #1 (Strong Buy).
Cabot Corporation (CBT) has an earnings ESP of +2.17% and carries a Zacks Rank #2 (Buy).
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